Thursday, July 19, 2012

The Morning Call + Subscriber Alert + Europe--it is still there

The Market


The indices (DJIA 12908, S&P 1372) had a great day and remain within their (1) short term trading ranges [12022-13302, 1266-1422] and (2) intermediate term uptrends [11994-16994, 1261-1841].

Yesterday’s pin action took both of the Averages above interim resistance levels (12903, 1364). In addition, the S&P also closed above the upper boundary of the developing pennant formation. The break of both of the resistance levels are now subject to our time and distance discipline; but because these are short term technical resistance points, the time element shrinks to two to three days. If this challenge is successful, then the next visible resistance is the upper boundaries of the short term trading ranges (13302, 1422).

Volume rose; breadth was mixed. The VIX declined but remains above the lower boundary of its intermediate term trading range and continued to develop the head and shoulders formation.

GLD was down and continues to trade above the lower boundary of its intermediate term trading range.

Bottom line: the bulls appear to be in control. As I noted above, a successful challenge of the 12903, 1364 level opens the likelihood of an advance to 13302, 1422. However, stocks will have to go without any additional participation from our Portfolios.



Yesterday’s economic data were again weighted to the positive side. The most important number was the increase in June housing starts. It is important because this continues the recent trend to better starts and thus serves to remove housing as a negative for the economy. Building permits were not that good nor were weekly purchase applications. Finally. the Fed released its latest Beige Book and the narrative was pretty much reflective of Bernanke’s comments on the economy this week.

The housing starts report helped stock prices move up in early trading; and in the absence of any other news on the day, kept equities to the upside all day.

However, the lack of news does not mean the lack of problems; the latest from Spain (medium):

And a look at how the latest (Spanish bank) bailout is working (medium):

Bottom line: the housing starts stat was another significant datapoint supporting our forecast of a sluggishly growing economy. That said, at current levels, stocks are Fairly Valued, so there is no pressure to get cash reserves to work. Adding to my restraint in Adding to our stock positions is the lack of progress in the EU dealing with its serious bank and sovereign solvency problems and my inability (as well as the rest of the Street) to quantify the economic risk if the ‘muddle through’ scenario fails.

I am not suggesting that stocks shouldn’t be bought at any price; just that the price is at least 5% lower than current levels.

The latest from the Leuthold Group (medium);

Corporate profits and wages (medium):

Subscriber Alert

Several stocks on our Buy Lists have risen above the upper boundary of their Buy Value Range. Hence they are being Removed from their respective Buy Lists.

In the High Yield:

Kinder Morgan Energy Ptrs (KMP-$85). The HY Portfolio owns an 85% position in KMP.

Cato Corp (CATO-$29). The HY Portfolio a full position in CATO.

In the Aggressive Growth Portfolio: Oracle Corp (ORCL-$30). The AG Portfolio owns a 75% position in ORCL.

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.